When you're figuring out the value of your property, it's crucial to know why you need that valuation in the first place. This is because the reason behind the valuation affects how it's done. When we as insurance brokers work with our clients, our focus is always going to be on the construction cost, as opposed to the market value. Let’s break down the difference between these two types of valuation.

Market Value vs. Insurance Value: What’s the Difference?

Market Value: When you ask for a market value report, the goal is to find out how much someone might pay for your property if it were sold today. To figure this out, experts look at several factors, like how much it would cost to rebuild, how much income the property might generate, and how similar properties have been selling. They also consider things like wear and tear, outdated features, or changes in the neighborhood that might make the property worth less, or more, over time. Once they’ve calculated these factors, they add the value of the land itself to get the total market value.

Insurance Value: On the other hand, when you're looking to insure your property, the focus is different. Insurance value is all about how much it would cost to rebuild your property from scratch if something happened to it—like a fire or natural disaster. This means the value is based on the current cost of materials and labor to replace the building "as new," without taking into account any depreciation or wear and tear. It’s important to note that insurance value doesn’t typically include the land, just the buildings on it.

Why This Matters: Understanding the difference between these two values is important because they serve different purposes. If you use market value for your insurance, you might end up over insuring, especially if property values have gone up in your area. By the same token, if you’re selling, knowing the market value will help you set a realistic price based on what buyers are willing to pay today.

To sum it up, when you need a property valuation, be clear about why you need it. This will ensure you get the right type of report, whether you're planning to sell or looking to protect your investment with insurance. Remember, if the insurance company is covering your building for replacement cost, make sure your agent has provided some guidance so you can avoid either under or over insuring.

What are the 10 key factors used to calculate building insurance values?

• 1. Total square footage of the building.
• 2. Type of construction materials used.
• 3. Year of construction and details of any significant renovations.
• 4. Type and condition of the roof.
• 5. Building layout and style (number of stories, rooms, etc.).
• 6. Building location (address and region-specific factors).
• 7. Type of foundation (slab, crawl space, or basement).
• 8. Special features or high-value items (e.g., custom cabinetry, luxury finishes).
• 9. Purpose of the building (residential, rental, commercial).
• 10. Additional structures on the property (e.g., garages, sheds, pools).

Now, here's the wild card we’re all grappling with these days—natural disasters that hit hard and fast, carving a path of destruction across a region and leaving us all reeling. These massive events can cause the cost of construction labor and materials to skyrocket overnight. So keep in mind, with the unpredictability of earthquake, sink-hole, wind, rain, flood, ice, hail, and even firestorms, sometimes even the most cautious reconstruction estimates can fall short when it comes to the actual cost of rebuilding after a loss.